The New York Times Company — 2010 Form 10-K
Reporting period: Fiscal year ended December 26, 2010 (52 weeks). The filing also reports fourth-quarter results; it is an annual filing, not a standalone quarterly report.
Business context
The Company operates two reportable segments: News Media Group, including The New York Times, The Boston Globe and regional newspapers, and the digital-focused About Group. Advertising and circulation are the principal revenue sources. Management described the business as adapting to the shift from print to digital amid a still-challenging economy.
Key financial metrics
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Revenue | $2,393.5 million | $2,440.4 million |
| Operating profit | $234.1 million | $74.1 million |
| Net income attributable to Company shareholders | $107.7 million | $19.9 million |
| Diluted earnings per share | $0.71 | $0.14 |
| Cash from operating activities | $153.3 million | $256.8 million |
| Capital expenditures | $34.7 million | $45.4 million |
| Cash, cash equivalents and short-term investments, year-end | $399.6 million | $36.5 million |
| Debt and capital lease obligations, year-end | $996.4 million | $769.2 million |
Revenue fell 1.9%; operating profit margin rose to approximately 9.8% from 3.0%, and net margin to approximately 4.5% from 0.8% (calculated from reported figures). Operating cash flow declined 40.3%, principally reflecting $176 million of qualified pension contributions. Year-end net debt, after cash and short-term investments, was approximately $596.8 million. The current-assets-to-current-liabilities ratio was 1.70, versus 1.00.
Advertising revenue declined 2.7% to $1,300.4 million; circulation revenue declined 0.5% to $931.5 million. News Media Group advertising fell 4.1%: print advertising declined 7.9%, while digital advertising grew 18.3%. About Group revenue increased 12.4% to $136.1 million. Its operating profit was $62.0 million, compared with $50.9 million; News Media Group operating profit was $219.2 million, compared with $21.2 million.
Fourth quarter: Revenue was $661.7 million, versus $681.2 million in Q4 2009; operating profit was $111.6 million, versus $136.0 million; net income attributable to Company shareholders was $67.1 million, versus $90.9 million. Fourth-quarter 2010 operating margin was approximately 16.9% (calculated).
Changes, outlook and material items
- Cost reductions continued: operating costs decreased 7.4% to $2,136.9 million, and management reported approximately $171 million of operating-cost reductions in 2010. The workforce decreased to 7,414 full-time equivalents from 7,665.
- In November 2010, the Company issued $225 million of 6.625% senior unsecured notes due 2016, receiving approximately $220 million net of transaction costs. The $400 million revolving credit facility was due to expire in June 2011; $337.9 million remained available at year-end after letters of credit. Management expected any renewal or replacement to be smaller and potentially secured or more restrictive.
- Management expected 2011 capital expenditures of $45–$55 million, depreciation and amortization of $125–$130 million, and net interest expense of $100–$105 million. It forecast newsprint prices to pressure costs, first-quarter circulation revenue to decline in line with second-half 2010 trends, and January print advertising to decline at roughly the Q4 pace; digital advertising increased in the mid-single digits in January.
- The Company planned to introduce a metered digital pay model for NYTimes.com and other platforms in early 2011, and a paid BostonGlobe.com site in the second half of 2011. Management cautioned that subscription uptake, audience retention and advertising effects were uncertain.
- Material 2010 items included a $16.1 million impairment charge on assets at the Globe’s closed Billerica printing facility; a $6.3 million adjustment to estimated multiemployer pension withdrawal obligations; an $11.4 million one-time tax charge related to federal health-care legislation; severance charges of $6.8 million; a $9.1 million gain on sale of part of the Fenway Sports Group investment; and a $10.2 million Company share of a paper-mill asset-sale gain. The filing states these items had a net unfavorable effect of $17.8 million, or $0.13 per share.
- Qualified pension plans were underfunded by approximately $441.8 million on a GAAP basis at year-end; preliminary ERISA funding measurements showed an approximately $270 million shortfall as of January 1, 2011. The Company made approximately $176 million of qualified-plan contributions in 2010 and expected about $32 million of required contractual contributions in 2011.
Risks and contingencies
- Advertising remains exposed to economic conditions, print-to-digital migration, audience fragmentation, and competition that can pressure print revenue and digital advertising rates. The planned digital pay model could reduce traffic or advertising revenue if it fails to attract paying subscribers or preserve audience.
- About Group cost-per-click advertising depends substantially on Google; changes in its agreement, ad systems or search traffic could adversely affect results.
- Newsprint price volatility and supply, union negotiations and labor disruptions, and pension funding requirements could affect costs, operations and liquidity. Multiple Globe union agreements had expired at year-end, with negotiations ongoing.
- The Regional Media Group had approximately $152 million of goodwill and its estimated fair value was close to carrying value. Management said a 2011 goodwill impairment was possible if projected cash flows were not achieved.
- The Company reported approximately $214 million of estimated future payments for certain Globe multiemployer pension withdrawals, subject to final plan assessments, and approximately $6 million for the City & Suburban withdrawal. It also disclosed approximately $74 million of uncertain tax-position liabilities, including interest and penalties; timing and settlement amounts were uncertain.
- Long-term debt was rated below investment grade by S&P and Moody’s. Debt covenants restrict certain transactions, including dividends; the quarterly dividend had been suspended since 2009. The Ochs family trust held about 90% of Class B shares and could elect 70% of the Board.
- Management and Ernst & Young reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. Management said ordinary-course legal actions were not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether digital advertising growth and the NYTimes.com and BostonGlobe.com paid models offset continued declines in print advertising and circulation.
- Cash generation after pension contributions, the level and timing of future pension funding, and liquidity following the June 2011 revolving-facility expiry.
- Debt refinancing plans, particularly the high-cost 14.053% notes due 2015, and compliance with debt covenants.
- Whether the Regional Media Group meets the cash-flow assumptions supporting its goodwill valuation and avoids an impairment charge.
- The final multiemployer pension withdrawal assessments and resolution of uncertain tax positions.